Now that Bush and Kerry have had their debate over national security and foreign policy issues, we can start focusing attention on domestic and economic issues. Here the sharpest difference is that Kerry has promised to roll back Bush’s tax cuts for those making more than $200,000 a year. Good idea or bad? Bush has credited these cuts for stimulating the economy; is this a defensible position? What will happen if Kerry wins and reverses the policy? (Assuming he gets it through Congress.)
Loaded question…my guess is that the answers willbreak down along political lines, mostly. Bush’s tax cuts a good idea? Well, its certainly arguable that cutting taxes stimulates the economy during a recession…I think it does. And in the short term, if you DO stimulate the economy, you can afford a deficit…a deficit in such a scenerio is not NECESSARILY a bad thing. However, Bush has also increased social program spending. He’s increased spending towards education (something like 20-30% if I’m remembering correctly). He’s also increased spending towards medical (perscription drug care entitlement) by something like half a trillion dollars (again, working from memory here). Then there is homeland defense, which is arguably a necessary program…but still costs boatloads of money. Then of course there are the Afghanistan war and our Iraq adventure. On balance I think Bush HASN’T done well for the economy.
Kerry’s tax, re-instatements I guess, for those ‘over 200k’…good idea? Well, again, it depends on what he does…if he simply re-instated the taxes while cutting the federal government to the bone, then that might stimulate the economy. If he adds a bunch of new programs and basically spends the money he gets back by re-instating the taxes, then I don’t see how anyone could think this will STIMULATE the economy…why would it? What incentive would those making $200k or more (the richest Americans and those most likely to invest) to invest heavily or to expand their businesses in a rapid fashion?
I added up all the programs he was talking about in another thread and used some figures from factcheck.org and came up with something on the order of $1.2 trillion in new spending…thats a hell of a lot of money, on top of Iraq/Afghanistan (which we are stuck with no matter what), homeland defense, etc…all those things we will have reguardless of if Bush or Kerry is president (I’m unsure of the Bush’s perscription drug care…does this stay even if Kerry is elected? I’m not sure but it adds more onto the potential bill).
No way in hell he’s going to get that from simply repealing the tax cut for those ‘over 200k’…no way. So, either Kerry is counting on the fact that he won’t get all his programs through a Republican controlled Congress/Senate, he’s exaggerating about the tax increases (i.e. it won’t JUST be those making over $200k), or he doesn’t really intend to push through all the programs he’s talking about…or he is seriously mis-informed as to how much REAL money he’s going to get back by repealing the Bush tax cuts to only those making $200k and above.
I think repealing the tax cuts COULD stiffle the growth of the economy…I also think that Bush’s programs and strange mix of fiscal conservatism along with social liberalism and spending IS stiffling the economy…big time. So, long story short…can I answer that BOTH of them are bad ideas?? 
-XT
This is a good way to put it. If you only look at the taxes, it is difficult to decide if they are good or bad. The real question is what will the money be spent on. I don’t think Kerry is promising to keep spending nuetral while raising revenue. So he can’t claim that the taxes would go to deficit reduction. At least not entirely. Meanwhile, Bush is proposing to keep the tax cuts but is also ignoring how the money will be saved. Both candidates claim that they will cut the deficit in half over their next term IIRC.
Perhaps we need a war on deficit spending? 
You don’t really think that’s a realistic option, do you? Neither candidate is promising to end the occupation of Iraq immediately. Kerry just says he can hope to begin to draw down troop strength in six months and pull out within four years. No matter who wins, we’re going to be pouring a lot of money into the Two Rivers for a while yet.
Well, I’m not convinced that spending on the war on terror has nearly as much to do with the deficit as that. I agree it has increased it. But to my mind, the worst problem is the massive percentage of the budget which is simply off the table. Not off the table excepting every couple years, but off the table completely. Republicans can’t get Democrats to talk about reforming this part of the system without beign accused of starving senior citizens. Democrats can’t get Republicans to listen to their proposals without being accused of being communists.
Meanwhile since those parts of the budget are pretty stable and untouchable, the only way politicians can “Bring home the bacon” is to move programs into the untouchable side of the budget, or invent new programs altogether.
Its a train wreck waiting to happen.
To answer your question more directly, yes, I do think a “war on deficits” is a realistic option. What I mean is simply more concerted action to balance the budget. Re enacting paygo just as it existed in the 90s would be an exelent start. It needs some tweaks. But those could be added after the original law was back in force. Secondly some sort of review of current social spending could be started. There are a lot of ideas out there. Some sort of program similar to the way we handled base closings in the early 90s might be helpful. Commissions consulting with experts over several years come up with a set of proposals which Congress accepts or rejects. No amending. If the commission were to have mandates about how much to save, or how much help to provide this might work.
Jeez, how can you even ask that? It’s like John Maynard Keynes never existed. When the government spends money, it doesn’t just shovel it into an incinerator. It spends it. Meaning, it buys things from private industry, or gives it to people who buy things from private industry. How could that not stimulate the economy?
Because the money was not earned by the spendee. The value of the transaction is therefore reduced. Granted, not necessarily to 0. But also the sign of the transaction tends to be opposite to the sign of a transaction taken freely between individuals.
How you figure that?
Sure, but you are talking about $200 billion (which isn’t what we’ve spent so far on the war, contrary to what Kerry said in the debate, but a projection of what we probably will spend)…as opposed to trillions in other programs. Yes, I think its realistic to have a “war on deficits” as pervert said…even in the midst of our current occupations. But its not possible unless we, as a nation, can look seriously at our various programs and make some fundamental changes in how and on what we spend our federal budget on.
Kerry could make a good start by increasing taxes back to pre-Bush tax cuts but adding no new federal programs to the mix. This would (probably) have a neutral effect on the economy at this point, balancing more tax burden with (potentially) a lower national debt.
That would easily pay for the war with a few hundred billion to spare…which could be used to lower the deficit. Then he (well, probably not Kerry :)) could start seriously looking at our social programs system, especially health care…what could be privatized, what could be re-vamped or altered to be more efficient? What could be gasp completely eliminated?
Balance the budget and get federal spending under control…thats the key. You are right about one thing though…neither candidate is likely to do this, nor is either of them even TALKING about doing this. So, its a screwed up situation no matter which way you turn.
-XT
You’re not talking about Social Security, are you? Please tell me you’re not talking about Social Security. Remember, the Baby Boomers haven’t even begun to retire yet.
And I hope you’re not talking about welfare, either. Really, how much of the federal budget does AFDC account for these days?
The value (to each of the participants) of a transaction is related to the value (again, to each of the particpants) of the goods exchanged. Since money aquired is not necessarily valued as highly as money earned, transactions conducted with the two are on an unequal footing.
I suppose I am saying that giving money out does stimulate the economy. But not in the same way, and not necessarily in a desirable way. If I may, what xtisme was trying to say was that if Kerry simply took money and spent it on new programs (thus leaving the deficits intact) this would not stimulate the economy. And for the record, Keynes IIRC suggested deficit spending during recession, but then tightening of the belt during economic growth. You have to do both, or you are just growing the government.
I hope that makes my opinion a little clearer. I am trying to avoid a hijack. I know, sometimes you can’t tell when I am avoiding one and when I am trying to commit one.
Sure, Keynes existed. Your assumption here is that he was RIGHT. I don’t subscribe to that assumption. Government spending does not always stimulate the economy…and certainly does not stimulate it in the long term. Why? Well, thats a complex answer, which you are going to rag me on for cites…something I don’t have time for atm, as I have a plane to catch tomorrow.
Check out this cite, called Commanding Heights. Its a pretty cool documentary. Listen to the whole thing, but listen to chapter 12 especially…it kind of gets to this point.
Sorry I can’t do better for cites tonight…I’m totally strapped for time. Too bad, as this looks to be a good thread.
-XT
The multiplier is different for different kinds of spending. Going into defecit to build infrastructure is an investment that has a relatively high multiplier. Transfer payments (welfare, etc.) have a relatively high multiplier as well, because poor people have a higher marginal propensity to spend that rich people. Building expensive bombs and blowing them up is a different matter; military spending has a relatively low multiplier.
I could make the same criticism of the income a rich person collects from investments made by his/her ancestors – it’s “money acquired,” not “money earned.” And it’s just as nonsensical. As far as the effect of spending on the economy is concerned, pecunia non olet – money has no smell. A dollar is a dollar, it makes no difference where it comes from.
In purely economic terms, what the hell is wrong with “growing the government”? And what do you mean when you say that public spending stimulates the economy, but “not necessarily in a desirable way”?
It is not a hijack at all. It goes directly to the question of the economic value of Bush’s and Kerrry’s respective tax policies.
The biggest problem with the Bush tax cuts was that they were directed to a group who would not help the economy when they got them. When your problem is over capacity, you don’t fix it by stimulating investment, but by stimulating demand. That happens by targeting the cuts to lower income groups, who spend more. If Bush had done that, we’d be in a rapid growth environment, and he’d be a shoo-in.
We did not get into a surplus directly by cutting spending or increasing taxes. We got there by an economic policy that leveraged economic policy to increase growth, which both increases taxes and decreases spending on unemployment and welfare. It’s a win-win. I paid a load of taxes during some years of the boom, but I certainly didn’t mine, having a bigger load of money I kept.
For example, Kerry is proposing taking over catastrophic illness coverage. This should cut insurance costs, and thus the cost of insurance to employers. A report indicated that one of the reasons for slow job growth is high insurance costs. I know of examples of this - of people who are given just enough hours to not qualify for benefits. If employers, relieved of these costs, hired more people, unemployment and welfare would drop, spending would increase, demand would increase, and employment would increase further. It is quite possible that the increased tax revenues would more than pay for this program - after all, even if everyone is working, the outlay would not increase. I’m not saying that this particular situation is valid, but this is where the surplus came from - definitely not tax cuts or major spending cuts. (If outlays went down during the Clinton years, I’ll eat my mouse.)
Well, you could, but it would be inacurate. The property which generates the income is in and of itself valuable. Unless you wish to say that a poor peron’s poverty is something he wishes to keep and hold (you know, value) then they are not the same thing at all. Money aquired from one place will by and large be valued less than at another.
But this is not true. Money is a measure of the value of things which it can purchase. This value does not live in the money. It lives in the moral structures of the people buying (or not) the particular goods. To paraphrase another thread (badly) a dollar may be a dollar, just as light speed is constant. But the distance between galaxies is increasing just as the value of goods for which dollars measure value changes.
Growing the government means that the government controls more and more of the economy. I know you are a socialist, but surely you recognize that eventually enough control over an economy is a bad thing, no?
Fair enough. I am trying to be mroe gentle about introducing tangents into threads.
I am just remembering from other threads, but IIRC the Clinton years did not include spending cuts like you and I would measure them. That is I don’t think there were very many programs which spent less money in ay year than they had in the previous year. but generally the government considers it a cut if the growth of a particular program does not meet some minimum. In this sense, Clinton did cut some spending. That is he kept it flat, or only increased it to match increased revenues.
As I said, not spending cuts as you and I would measure them, but many program participants felt they were being cut.
The point, of course is that spending was kept under control relative to revenue. When Congress enacted the paygo legislation everyone was forced to look for revenue growth or spending cuts to fund any new programs. There were problems with it in that there were loopholes. If I am not mistaken, by the end of its life it was far more common for legislation to be exempted than in the begining. But now that it has lapsed, there is not even a minimal requirement to look at where money is to come from.
I would differ slightly from your assessment in that I do not give Clinton era policies that much credit for the economic growth during that period. The fact of teh matter is that Federal spending is only about 20% of GDP in total (states sometimes get credit for another 20%). This is spread throughout so many programs it is difficult to call it either stimulous or infrasturcture investment. It seems much more likely that if anyleveraging occured it was the leveraging of the other 60% of GDP.
Finally, I strongly disagree with your assessment that further government funding of health care coverage will result in a net increase of the economy. We already provide quite a bit of health care directly from the federal and state governments. The programs are very close to being in deficit. The projected “unfunded liability” represented by this in a few years is actually unmeasurable. It is just as likely that the medical costs we already have will bankrupt us as not. Simply adding more to that expense in not the way to address our health care problems.
Why?
You seem to be talking, in a circuitous way, about inflation. But public taxing-and-spending is not the only cause of inflation, is it? Inflation is often a result of economic boom times. Nor is inflation always, for all people, a bad thing. (As a general rule, it’s good for debtors, and bad for creditors, and bad for anybody living on a fixed income not adjusted for inflation, and bad for anybody earning a statutory minimum wage not adjusted for inflation.)
And what do you mean, “the value does not live in the money”? Of course it doesn’t; you can’t wear money or eat it. So what? A dollar, or any unit of currency, represents a claim on an infitesimal but very real fraction of the total of the goods and services and assets in the economic sphere within which it can be spent; its value depends on the ratio between the number of units in circulation and the amount of real, nonmonetary wealth in that economic sphere. Basic supply and demand.
But none of that changes my point: Money has no smell. A dollar earned, a dollar taxed, a dollar stolen, a dollar inherited, all have exactly the same purchasing power.
And what’s this about the “moral structures”? What has that to do with economics? It is possible for a given society to be morally corrupt and economically prosperous at the same time – look at prewar Nazi Germany.
To me, “socialism” means simply the belief that a classless society, without extremes of wealth or poverty and without glaring inequalities of political power, is a goal both desirable and achievable. It does not necessarily mean big government, nor does it necessarily mean small government; I’ll follow whatever path gets us there from here.
But, to answer your point, the failure of Soviet Communism taught us that the state owning and managing all the means of production is not the best way to create wealth. It does work for some purposes – mainly, heavy capital formation. Stalin was able to turn a mostly agrarian society, whose incipient industrial infrastructure had been devastated by WWI and the Civil War, into a major industrial power that was capable of standing up to Hitler’s Germany on roughly equal terms. But that kind of state socialism is not much good at the finer points of wealth creation, particularly innovation, and the perception and satisfaction of economic “needs” previously unrealized. No Soviet economic planner would ever have thought of creating a Sony Walkman or a fabric softener. (Whether that is a good or a bad thing is debatable.) I see perfectly the value of a free-market system in wealth creation.
But that does not mean a large state sector cannot play a valuable role in a healthy economy. In the private commercial sector of the economy, nothing at all gets done unless somebody sees a way of making a monetary profit on it, and that in the short run. And – while you might disagree strongly on this point – some things do need to be done even though there is no way to make them profitable in that sense. No private corporation or consortia of corporations would ever have built America’s interstate highway system; the expense was too great and the economic value too distant and diffuse.
“Growing the government” is not necessarily bad for the economy because it does not necessarily detract from economic activity in the private sector. When the government hands out welfare checks and food stamps – with what kind of private business is it competing? What private-sector activity is it displacing? None. When your property is taxed to support a public library, what private library is it putting out of business? Bookstores and video rental stores continue to thrive, even though anyone can borrow books and videos from the library for free. Some people regard even a public library as a form of “socialism,” but whatever you call it, neither a large public-service sector nor a generous welfare state require that the state directly own or manage any farms or factories. Most of the basic wealth-production activities remain in private hands. Some conservatives seem to regard the percentage of a nation’s GDP that is in the government sphere as a measure of its economic health – assuming that the lower that percentage is, the healthier the economy is. And there is no good reason to believe that, other than the example of the economic failure of societies where that figure was at or near 100%, as in the Soviet Union. I hope you can see the fallacy of that kind of straight-line extrapolation.
Or perhaps by “growing the government” you do not mean the government’s share of the GDP, but the degree and the intrusiveness of government oversight of the private sector. And here, I suppose, we’ll never agree; but I believe fervently that capitalism is a socially dysfunctional and destructive system unless it is closely regulated, and that in some cases regulation is worthwhile even if it diminishes bottom-line productivity. A given factory might be able to produce its goods at a much lower per-unit cost if it were allowed to pay its workers 30 cents an hour and dump its waste products straight into the nearest river – but can you imagine what would be the long-term social and environmental effects of that? (You don’t have to imagine, just looke at any Nike plant in Malaysia.)
Bottom line, I think America needs to be a lot more like Euroope. The economies of Europe might not be as productive as ours per capita, but by any reasonable standard they are indeed thriving and growing economies, despite having massive welfare states and a lot of GDP in the tax-and-spend public sector and intrusive economic and environmental regulations and politically powerful labor unions. And in terms of negative social indicators such as crime, poverty, homelessness, illiteracy, malnutrition, infant mortality, etc., etc., they are much healthier societies than ours. Europeans take longer vacations every year than we get in America, they work shorter hours, maybe in sum they do not work as hard as Americans – but they work as miuch as they need to, to make everything work and to be happy and safe and comfortable. What’s wrong with any of that?
Brilliant post, BrainG.
Thanx, A!
Welcome. That’s precisely the type of “socialist” that I profess to be. Well put, well put!
Now let’s see some of the clever replies to it.